Pound US Dollar (GBP/USD) Exchange Rate Slides amid Bearish Trade
The Pound US Dollar (GBP/USD) exchange rate is collapsing this morning, amid bearish trade and growing expectations of hawkish action from the Federal Reserve.
At the time of writing, GBP/USD is trading at around US$1.2591, a drop of just under 1.2% from the morning’s opening rates.
USD to be Limited by Light Data Calendar?
Thus far this morning, the US Dollar (USD) has gained ground against its peers following hawkish remarks from Federal Reserve Chair Jerome Powell.
In an interview with CBS, Powell stated the Fed was aware of the risks of cutting interest rates too soon. As such, investors have further pared back their bets on imminent policy loosening, boosting the ‘Greenback’ against its peers.
Later today, the US Dollar may see further strength if the ISM services PMI prints as expected. In January, economists forecast the vital sector to have expanded, with the index expected to print at 52. This could boost USD by showing continued economic resilience, which would give the Fed more room to hold interest rates for longer.
Looking ahead, data releases are set to thin out for the US Dollar in the immediate future. Because of this, USD is likely to be left exposed to shifting levels of risk appetite. As a safe-haven currency, if trading conditions worsen USD exchange rates could gather pace against riskier assets.
GBP to Struggle amid Lack of Data?
Despite a better-than-expected increase in the final UK services PMI, the Pound is weakening sharply against most peers this morning.
As an increasingly risk-sensitive currency, the Pound is susceptible to shifts in risk appetite. With bearish trade colouring the session, GBP is unable to find its footing.
Furthermore, the predominant reason for increasing service sector activity is increasing confidence borne from expectations of imminent interest rate cuts. With this in mind, investors are betting that the Bank of England (BoE) will cut rates sooner than initially expected.
Looking ahead, data releases for the Pound are few and far between in the coming days. Because of this, minor releases may gain additional attention from investors.
The British Retail Consortium (BRC) is due to publish its latest retail sales monitor overnight, with the expectation being a 1.7% increase on a monthly basis. If this is accurate, GBP may strengthen amid signs of increasing activity in the retail sector.
Risk appetite is also likely to play a role in shaping GBP exchange rates. If trading conditions remain downbeat, the Pound could struggle for support.
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